There are many computerized systems for managing projects and employees in professional service firms, such as a law firms and engineering firms. Perhaps the best known and most widespread system is based on the billable hour. This system normally is implemented both internally within the firm as a method for employee management and externally outside the firm as a method for billing clients.
Internally, the billable hour system is used to keep track of the number of billable hours that each professional employee works for the firm on client cases. Many firms track the number of billable hours per month performed by each employee and evaluate the employee performance in large degree based on their total number of billable hours. In fact, many firms include as part of the employment contract a requirement that the employee work a minimum number of billable hours each month. Internal management decisions relating to employee promotions, salary raises, bonuses, and the like are often based on the billable hours that are tracked within the firm as the sole measure of employee performance.
On the other hand, the billable hour system is also used by professional firms as a method for determining the fees charged to clients outside the firm. The firm normally sets one or more hourly billing rates and charges a client based on the number of hours of service performed for the client on its cases. Charges to clients external to the firm are thus based on the billable hour system as well.
Despite its widespread use, the billable hour system has many problems with both its internal and external aspects. Internally, the billable hour system as a method of evaluating employee performance discourages employees from spending time on personal professional development and business development, and it promotes a work ethic that values quantity of work over quality of work. Because employees are evaluated based on the quantity of hours spent, the system discourages employees from performing work more efficiently. For example, an inexperienced and inefficient employee who spends a long time completing a project is paid more than an experienced and efficient employee who completes the work quickly, thereby discouraging employees from improving their work efficiency. Lack of efficiency then leads to the need for management to monitor time reported by employees to determine whether all the time logged by the employees is actually billable. Moreover, because quantity of service is internally valued over quality of service, the firm may become more vulnerable to professional liability and may lose valuable clients. The billable hour system also consumes employee time logging and reporting every minor task performed and its associated client case. In addition to consuming time, this reporting distracts the employee from concentrating on the actual service being performed. Moreover, under the billable hour system, management also has the burden of tracking employee vacation time. Existing computerized systems to assist in the management of projects and employees are generally limited to the billable hour system, and therefore embody and perpetuate these problems.
The billable hour system as a method of billing clients external to the firm also suffers from various problems. For example, often there arises the need for management to review and correct invoices in order to determine whether all the reported employee time can be reasonably billed to clients. While the employee is motivated to report large numbers of hours, management needs to ensure that the hours invoiced can be reasonably justified to the client. Because of these conflicting interests, the billable hour system consumes valuable management time reviewing invoices, determining whether the time is justified, and correcting the invoices. Another problem is that billing clients by the hour generates complex invoices that lack simplicity and transparency, resulting in frequent requests from clients to discuss or dispute specific charges or number of hours. In an effort to control their costs, some clients pressure firms to adopt specific invoice formats and billing practices. These demands are very burdensome to the firms, especially when they involve various distinct and changing invoicing requirements imposed by different clients. Even with a uniform set of industry-wide task codes to categorize standardized tasks or deliverables, the invoices are still complex and often result in discussion and dispute of various small line-item details. Invoices containing a large number of detailed items also has the disadvantage of giving the client a sense of being ‘nickel-and-dimed’ for many minor tasks performed within the firm, distracting them from the primary deliverable being provided. Existing computerized systems to assist in the invoicing of projects to clients are generally designed for the billable hour system, and therefore perpetuate these problems.
To avoid some of these significant problems with the billable hour system, some firms have adopted a simpler project-based billing system that charges clients a standardized fixed fee (also called a flat fee) for a given service or deliverable, regardless of the time spent performing it within the firm. The fixed fee system, however, solves only the external problems caused by the billable hour system. Firms that bill fixed fees externally to clients typically continue to use the billable hour system internally to track and manage employee performance, especially since computerized systems to assist and automate project and employee management are designed to conform to the billable hour system. Thus, the significant internal problems created by the billable hour system are not solved by merely switching to a fixed fee client billing system.
To address some of the internal problems created by the billable hour system, some firms have introduced mechanisms to counteract its shortcomings. For example, some firms award a bonus or profit share to supplement the employee salary based on various factors including employee-generated revenue or profitability, commissions, client development and retention, business development, firm management or administration, seniority, and level of expertise. Other firms award employees credit hours that count toward their minimum billable hour requirement whenever they perform certain activities such as mentoring, business/client development, and education/professional development. These systems, however, merely introduce countermeasures to the billable hour system. They do not dispense with or replace the billable hour system for employees.
Consequently, many of the fundamental internal problems created by the billable hour system remain. For example, the system still values quantity over quality as a measure of performance, still discourages employees to perform work efficiently, still requires management to review time reported by employees to ensure that it is reasonable, and still consumes valuable employee time logging time. Moreover, because computerized systems are designed to use the billable hour to manage projects, employees, and client charges, attempts to depart from the billable hour system are often difficult or impossible to implement using such systems.
Many of the above systems for billing clients and evaluating employee performance are implemented using a computer database and associated programs or scripts. The implementation may be a single integrated database and application program or may be separate databases and programs that exchange or share information. In any case, the computer-implementation of the system suffers from the inherent limitations of the assumptions that underlie the organization and design of the system. Thus, the usefulness of existing computerized implementations of employee management systems is limited by the problems of the billable hour system that is built into them. There is thus an outstanding need to provide a new computerized system for employee management that overcomes the problems with existing systems.